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New York City homeowner Tina Larsson watched for nearly a decade as a new subway station was built right across the street from her brick midcentury co-op on Manhattan’s Upper East Side. The excavation blasts shook her walls and sent dust spewing into the air; the noise and disruption choked off business to once-busy restaurants and shops.
It was, in short, a terrible mess.
Then in January, the heavy construction machinery suddenly disappeared, the sidewalk scaffolding was taken down, and the endless clutter seemed to vanish overnight. After nearly a century of starts and stops, the $4.5 billion Second Avenue subway—one of the nation’s most notoriously delayed large-scale transit projects—was finally open for business. It was sleek, modern, and even festooned with original Chuck Close portraits. Now, Larsson, 51, and many of her longtime neighbors, are finally ready to reap the real estate rewards.
Prices in Larsson’s building have shot up about 60% over the last three years—a bonus for existing owners and a burden for local renters, who may soon be priced out of the market. Larsson attributes the appreciation to her building’s close proximity to one of the three new stations on the subway, which now connects the far east side of Manhattan to the rest of the city.
“The people who are buying [here now], not only in this building, are very well off,” says Larsson, CEO of the FolSon Group, a consulting firm that advises co-ops and condo associations on efficiency and management. “The people who bought [years ago], I doubt they could buy now.”
New York City’s Second Avenue line isn’t the only high-profile public transit initiative with the potential to fundamentally transform its local real estate market—in ways both good and bad. Home and rental prices are on the rise near the New York City line as well as in cities across the nation, like Los Angeles, Charlotte, NC, and Phoenix, where long-anticipated mass transit lines or extensions have opened or are in the works.
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These new lines can remake struggling neighborhoods or sleepy communities on the outskirts of city centers, having become suddenly desirable for young and old new residents alike. Or, as is the case in New York, they can make healthy housing markets into very healthy, superhot ones. Close to the stations, new housing and shopping developments typically rise. Restaurants, new businesses, and offices crop up, bringing jobs to the area.
Not all is smooth riding, however. While homeowners often benefit from higher property values, longtime renters can find themselves pushed out of rapidly gentrifying and ever more expensive areas. And the character of these communities is often irrevocably transformed.
In New York over the last year, median home listing prices on the East Side near the three new subway stops at 72nd Street, 86th Street, and 96th Street, have risen 4.6%, according to a realtor.com® analysis of ZIP codes along the Second Avenue subway line.
That’s a bit lower than the annual home price appreciation on the West Side of Manhattan, at 6.7%. But home prices on the East Side near the stops went up 11.1% in the last three years. Now they’re expected to rise higher and faster.
This represents pent-up demand in a neighborhood that for years had become a full-fledged construction zone. Rents of one-bedroom apartments went up 6.3% in ZIP 10028, near the 86th Street stop, and 5.9% in ZIP 10128, near the 96th Street stop, according to Apartment List data.
“Properties saw a premium right before the line was finished, because people anticipated the uptick in value as soon as the construction hassle was over,” says New York-based real estate appraiser Jonathan Miller.
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How much more are homes near public transit worth?The public transit effect on housing varies dramatically by region.
In selected cities across the United States, single-family homes near public transit stops can cost 2% to 32% more—while condos can fetch 2% to 18% more, according to a 2008 report from the now-defunct Center for Transit Oriented Development. The report looked at San Francisco, San Diego, Sacramento, and Silicon Valley’s Santa Clara County in California; and Chicago; St. Louis; and Portland, OR.
Meanwhile, rent premiums for apartments can range from nothing to 45%. The report looked at apartment rentals in San Francisco, San Diego, and Santa Clara County, CA.
People generally like the convenience of living near a stop. But there’s a deeper driver, too: Neighborhood identity quickly becomes defined by the station.
“It literally puts you on the map,” says Michael C. Carroll, director of the University of Texas’ Economics Research Group in Denton.
And with that new definition and prosperity comes new construction. New residential buildings, which may have nicer amenities, like rooftop dog runs or indoor rock-climbing walls, in turn spark the development or redevelopment of neighborhood amenities like restaurants, shops, and entertainment venues. And the circle continues…
“A lot of the property appreciation is an effect of new development,” says Javier Vivas, realtor.com’s manager of economic research.
Living near a rail or a bus rapid transit stop can help homeowners protect their biggest ever investment by allowing them to better weather recessions, since those property values are less likely to tank, according to a 2013 report from the National Association of Realtors® and the American Public Transportation Association. The report looked at five cities between 2006 and 2011.
In Boston, home prices near train stations were about 129% higher than in the rest of the region during the height and trough of the housing market, according to the report. In Minneapolis and St. Paul, the figure was 48%, followed by San Francisco and Phoenix at 37% and Chicago at 30%.
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Why communities love light railHome prices have been rising rapidly in the fast-growing financial hub of Charlotte, NC—about 27% year over year, according to realtor.com data. The city’s nearly 10-mile light rail system, which opened in 2007, can’t take all the credit for this. But within a one-mile walk of the station, property values increased about 3.37% more than similar houses located at least a mile from the stations, according to a 2012 study published in the Journal of Transportation and Land Use.
Light rail systems are the latest craze in urban transit. What makes them such a hot ticket for growing cities? Well, since they’re above ground and carry fewer passengers than underground subway systems, they’re far easier and less expensive to build out. They even add some visual panache to most neighborhoods.
And that’s why there’s more to come across the United States. Charlotte, for one, is slated to extend its light rail system 9 miles north from the central business district to the campus of the University of North Carolina, a major employer. The extension, slated to open in early 2018, will add 11 stations in the business district. It’s all part of a plan to build out 46 miles of commuter and light rail by 2030.
Buyers are already clamoring for the single-family houses and townhouses in the older neighborhoods near the new rail lines, says Charlotte real estate broker Sandy Kindbom of Allen Tate Real Estate.
“People are excited about it,” she says, noting the rapid development of apartments, breweries, and other businesses along the light rail stations and within about half a mile. “Young professionals will gravitate there.”
However, all that new development can come at a cost. Nationally, older buildings that have become local landmarks may sometimes meet the wrecking ball, victims of the transit construction. Call it the price of progress, for better or worse.
Changes to car culture in the WestMerkuri2/iStock
The famously car-centric city of Los Angeles has also gotten a jolt from its 6.6-mile Expo Line extension, which opened in 2016, connecting downtown L.A. to the beach town of Santa Monica for the first time by rail.
L.A. neighborhoods along the route like Jefferson Park and West Adams are already beginning to see home prices rise as a result. For example, annual median prices shot up 14.6% in May in the ZIP code 90016, which encompasses West Adams, according to realtor.com data. Meanwhile, median prices in Palms, the first new stop on the line’s extension, went up 8.4% in May compared with one year before.
A further boost seems likely. In 2019, the Expo line is expected to link up with the Crenshaw Line—and a stop near the Los Angeles International Airport.
But observers worry it has the potential to make the area, where prices have been rapidly rising over the last few years, less affordable for those who aren’t making bank.
The same kind of good news/bad news dynamic is playing out in Greater Phoenix as well. The city’s existing 26-mile light rail line system is slated to extend by about 20 miles by 2026. Day passes for the system, which connects Phoenix and its satellite cities of Tempe and Mesa, cost $4.
New apartment buildings, hotels, and businesses have sprung up around the stations on the system since the first 20 miles opened in 2008, says Susan Tierney, a spokeswoman for Valley Metro, the regional public transportation agency in greater Phoenix.
“There’s been a lot of community revitalization” as a result, she says. “And there’s been higher than anticipated ridership.”
Those trains are clearly drawing more people to the area—particularly millennials who may not want to own cars, she says. Indeed, Phoenix’s population rose about 8% from 2010 to 2015, according to U.S. Census figures. Meanwhile, median single-family sale prices have risen 21.6% from 2008 to 2016, according to National Association of Realtors data. And city planners expect even more growth.
“We are preparing for the future,” Tierney says.
Do transit stations bring crime closer to home?Meanwhile, the widely believed notion that additional public transit stops lead to an influx of crime may not hold up. Property crimes actually decreased after Charlotte’s new light rail stations began operating, according to a 2011 study published in the Journal of Urban Affairs.
The reality may be that stations are dangerous in crime-ridden neighborhoods simply because they’re in crime-ridden neighborhoods. In fact, the added investment in the area that transportation brings is a deterrent to crime, according to the Journal. The extra security and increased foot traffic can’t hurt either.
There’s already a very tangible increase in the crowds milling about on the Upper East Side of Manhattan, where the new Second Avenue subway stations have opened. Storefronts abandoned during the years of construction are reopening with trendier restaurants and boutiques than the ones that closed. And this perennially sleepy neighborhood, long dismissed as tragically unhip by New York’s tastemakers, is actually becoming a hopping destination stop.
“The streets are full of young people. There’s so much pedestrian traffic,” Larsson says. “It’s all moving in the right direction.”
The post Fast Track to Skyrocketing Real Estate Prices: The New Public-Transit Effect appeared first on Real Estate News & Insights | realtor.com®.
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